Derivatives: Darth Vader's Revenge Message Board

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Non-Tech : Derivatives: Darth Vader's Revenge

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To: James C. Mc Gowan who wrote (198)	9/25/1998 8:17:00 PM
From: Henry Volquardsen	Read Replies (2) of 2794

James, nothing personal was meant by my questioning of your use of the word pirates. I wanted to get a handle on why you thought they were pirates. I know a lot of hedge fund managers. Most are decent people but there are some who make pirates look like boy scouts. So I recognize the possibility and was more interested in wether there was a specific that you were referring to. You ask about my comment ...large and prestigious(will) admit some very big losses. You ask who I meant. There have been a number of announcements from European commercial banks already, specifically UBS. I need to be careful about stating names because I don't know what is already public and some of what I have heard may be the usual market rumours. But I don't believe any US commercial banks are among the losers but a couple of investment banks/brokers are. There are also at least two institutions who have injected capital who were not previously investors so not all the lenders would be short candidates <ggg>. I am sorry I can not be more specific but it has been a pretty long 2 days and there are lots of rumours mixed in with the facts and I don't want to mislead anyone. Re your comment about wether executives at some of these firms who are injecting capital into LTC had personal investments in the fund. I don't know if this is true. But if it is true it is a problem but not the one that you imply. They are not in fact lending in order to bail out their personal investments. Their investments are gone, toast. Those personal investments have been 90% wiped out and that principal ain't coming back. So there is no conflict, in my mind, in this lending. Where I see a big problem is that these firms were apparently lending quite aggressively to partnerships in which these executives had a large personal stake. If I were a shareholder in these institutions I would have some questions about the terms of the original relationships. I believe Seidman is correct about the lack of transparency in some of these funds. But it is not as if the market didn't have the ability to demand greater transparency. I have investments in several hedge funds. But I have only invested in funds that provide full disclosure on what they are doing. I also do business with hedge funds and my firm is very rigorous about knowing what they are up to and staying on top of their collateral. The problem is not everyone does this. The investors in many hedge funds get mesmerized by big returns in up years and stop don't treat their money seriously. At some level this is really know different from mutual fund investors who have come to believe 25% returns are normal. The banks also did a terrible job of supervision. They have the capability to monitor this risk and demand transparency. But as Rubin implied in his testimony, after six good years they got lazy and started competing with each other with ever easier credit terms. So if you want to be angry about this thats fine. There is certainly enough arrogance among hedge fund managers to justify some anger. But don't let the lazy and greedy bankers and investors off the hook either. Henry

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